It’s a staggering number to think about, but nearly 8 in 10 parents still provide some type of financial assistance to their adult children. This assistance ranges from those parents paying rent or utility bills to more than half of all parents who still pay for their adult kids’ cell phone expenses. Of course, it’s natural to want to assist your kids when they need it, but doing so can be a slippery slope to your own financial demise – especially if you put their needs ahead of your retirement savings.
If you really want to give your kids a financial head-start, work to impart the types of financial literacy lessons that will turn them into financially independent adults. Below, we’ll discuss a few steps you can take.
Talk About Money
Many people still consider money a taboo subject, even within the confines of their own homes. However, openly discussing household finances with your children is one of the best ways to teach them about financial literacy concepts like the financial realities of budgeting and making smart spending choices. Lead by example and show them how to be responsible, and you can even consider sharing mistakes you’ve made so that they can learn from them in their own financial lives.
Help Them Open Their Own Bank Accounts
Kids need experiences to enhance their learning, and walking them into a bank to set up a new account is a fantastic way to get real experience with saving, spending, and interest. Now, this doesn’t mean you should fund your kids’ accounts. Rather, encourage them to consider depositing birthday or holiday money, or money they earn doing chores or at a part-time job. Couple this encouragement with practical skills, such as using their bank’s mobile app to deposit checks and how to keep track of their debit card spending. Sometimes, technology can make money feel less real, so be sure to drive home the point that the numbers they see when they login aren’t simply “digital dollars”, but real money – of which they have a finite amount.
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Teach Them to Budget
The cornerstone of financial health is to ensure you don’t spend more than you earn, and creating and sticking to a budget offers excellent lessons for kids. Budgeting means understanding the difference between necessary and nice-to-have spending, and it means making difficult decisions sometimes in support of long-term goals.
Teach Investing in Fun and Relatable Ways
The stock market and investing concepts can be confusing even for adults, especially when you don’t know much about them, but investing is crucial for long-term financial success. For kids, a great way to start lessons in investing can be to ask them to identify a brand or company they are interested in already – a favorite clothing brand they follow on Instagram, for example. Then, you can watch the company’s returns over a certain time period and discuss the natural ebbs and flows of the market. You can also make it real by helping them invest a small amount of their own money in an individual stock or a mutual fund, discussing concepts like risk tolerance and long-term goals along the way.
If your kids are old enough to work part-time jobs or they have other earned income, they can even open a Roth IRA. This is a fantastic way to begin discussions about retirement savings, tax-advantaged accounts, and the “magic” of compounding.
Be Clear About the Support You Will and Won’t Offer
Of course, your children will rely on you financially for quite some time, even as they are learning the foundational concepts above. However, you don’t want them to think of you as their financial fall-back plan into adulthood. This only serves to make them less responsible with their own money as they move into college and beyond. Be upfront about what they can expect from you – paying half their college tuition, for example – and about what they need to handle themselves, like paying back student loans.
Let Mistakes Happen
As in many areas of life, mistakes often prove to be the best way to learn. When it comes to kids and money, they’re bound to happen. When they’re young, they will fail to save consistently and then not be able to afford that new tech gadget they’ve had their eye on, they will forget to track their spending and overdraw their checking account, they will spend excessively on nice-to-have items and then come to you for help paying for necessities, and more.
As difficult as it will be for a parent to watch these mistakes happen, it’s important that they do. We learn the most when we face challenges and overcome them, and recognizing our mistakes helps us adjust our behavior in the future. In this way, making money mistakes while still under the safety of your roof is a useful way for your kids to learn healthy financial habits for that time when they leave home for college or their first job.
Final Thoughts on Raising Financially Independent Children
Raising kids who are interested, savvy, and disciplined about money matters isn’t an exact science. However, we as parents have tremendous influence over our children, and this includes the values they develop as they grow older. If you continually make it a point to discuss money matters, impart wisdom and skills, and provide learning experiences, your kids have an excellent chance of becoming financially independent adults.